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Australia’s fintech future
Visa Public
Contents
03 About this report
04 Introduction
05 A message from Startup Muster
06 The 'average' Australian fintech
09 Fintech founders
11 Why fintechs are founded
12 A bullish outlook
14 The financial reality
15 How established businesses can help
16 Conclusion
17 Build the future of payments together with Visa
Disclaimer Case studies, statistics, research and recommendations are provided "AS IS" and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. You should consult with your legal counsel to determine what laws and regulations may apply to your circumstances. The actual costs, savings and benefits of any recommendations or programs may vary based upon your specific business needs and program requirements. By their nature, recommendations are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Visa is not responsible for your use of the information contained herein (including errors, omissions, inaccuracy or non-timeliness of any kind) or any assumptions or conclusions you might draw from its use. Visa makes no warranty, express or implied, and explicitly disclaims the warranties of merchantability and fitness for a particular purpose, any warranty of non-infringement of any third party's intellectual property rights. To the extent permitted by applicable law, Visa shall not be liable to a client or any third party for any damages under any theory of law, including, without limitation, any special, consequential, incidental or punitive damages, nor any damages for loss of business profits, business interruption, loss of business information, or other monetary loss, even if advised of the possibility of such damages.
Visa Public
Within the startup sector, Australia’s fintech community is made up of more than 500 companies, whose innovation is helping to usher in a new era of experiences.
So what is the fintech scene like in Australia? Visa partnered with Startup Muster to deliver an in-depth look into the nation’s fintech ecosystem.
The report examines insights from 245 fintechs surveyed by Startup Muster between 2016 and 2018, exploring demographics, skillsets and attitudes and digging deeper into factors like funding strategies and why fintechs tend to be more hungry and bullish than an average startup. Three-quarters (76%) of the companies surveyed were less than five years old.
The startup sector is a dynamic and increasingly important part of the Australian economy.
About this report
3 • Visa Public
More than sixty years ago, Visa pioneered the digitisation of money, becoming the world's first fintech. Since then, we’ve seen further major disruption across the financial services sector, with much of that change orchestrated by startups that have successfully shaken things up and made their mark. Others have struggled to have their concepts come to fruition in an increasingly competitive environment.
With $17 trillion in consumer payments still made in cash/cheque1 and 1.7 billion people outside the formal financial sector2 there is a huge opportunity for fintechs to pioneer new kinds of digital payments that will drive the next generation of payments innovation forward.
Introduction
1 Visa Annual Report (December 2018)2 Global Findex Database (2017)
As an enabler of many startups, Visa has deep insight into the impact of fintech on the financial services sector. In some ways, fintech is the starting point from which the conventional concept of finance comes to an end.
The level of investment, progress and growth in fintechs is dictated by market factors such as consumer trust and appetite, regulation, and access to talent, but wherever you look in the world, the potential and impact of digital financial services cannot be denied.
This report uncovers how Australian fintechs are faring at various stages of development and what the financial services sector needs to know about the newcomers.
We hope it offers innovators – in startups and established companies – insight and inspiration to thrive in the global fintech revolution.
1.7bn$17tn
4 • Visa Public
Whether it’s who they are, how they work, what they work on, who they work with or who they work on it for, every part can be designed without concern for what currently exists in an established organisation, creating and capturing new opportunities along the way.
It’s no stretch for any Australian to understand the size of company that is possible in this financial services industry – but the scale and success of these large institutions is exactly what prevents them from doing the kinds of things our young fintech startups can.
Startups matter because of the blank canvas they’re able to use to create a solution that existing companies can’t.
A message from Startup Muster
Having watched the growth of Australia’s fintech industry closely, we believe it represents a unique opportunity for our country to leverage its existing strengths to develop new business models and supporting technologies that could not happen anywhere else in the world.
Visa’s support of this industry is notable, as is the support from a growing number of funds, accelerators, incubators, educational offerings, regulatory and government programs and other forms of supporters, which similarly see the incredible opportunity that Australian fintech presents.
5 • Visa Public
Entrepreneurs and intrapreneurs are changing the financial services landscape at a rapid pace.
Australia is in the midst of a fintech revolution.
The ‘average’ Australian fintech
Intrapreneurs refer to the many people innovating within established companies.
382 5262018 2019
A Visa market scan identified 382 fintechs in Australia in 2018, which increased to 526 in 2019. And fintechs are growing in diversity as well. The market scan found 18 categories of Australian fintechs, highlighting the sheer depth and breadth of this community.
6 • Visa Public
Emerging Fintech Areas:Breakdown of the various sub-sectors of fintech
Blockchain & CryptocurrencyTechnology infrastructure powering blockchain & cryptocurrency ecosystem
InsurTechTechnologies and platforms modernising, optimising, or rethinking the insurance industry
Online BankingNew consumer and business banks built and operating entirely online
Direct Biz/Consumer LendingPlatforms enabling business & consumers to borrow money from institutions
Marketplace LendingOnline marketplaces that connect people and businesses to fund one another
Process & Pay InfrastructureUnderlining technology infrastructure powering modern banking and payment networks
CrowdfundingOnline Platform allowing business and products to raise investment from the crowd
Investment ManagementPlatforms allowing consumers to better manage and trade assets and securities
Payments, Wallets & TransfersTechnology enabling peer-to-peer monetary transactions via mobile, web, and other devices
Fin Services & InfrastructureTools and platforms that help financial professionals and institutional investors
Merchant Services & ToolsPlatforms and tools that allow small-to-medium-sized business to better manage their businesses
Retail TechnologyHardware and software technologies enabling transactions and processing at point of sale
Data & AnalyticsPlatforms that collect, aggregate, and analyse payment and customer data
LoyaltyPlatforms that provide loyalty, rewards, and retention solutions to consumers and businesses
Personal FinancePlatforms that allow consumers to get a holistic view of their finances and manage their assets
ID Authentication & SecurityTechnology enabling cyber security, fraud identification, and user authentication for financial software and platforms
Money Transfer & RemittancePlatforms and technologies facilitating the transfer of money around the globe
Wealth ManagementRobo-advisors and other next-generation wealth managers and platforms
7 • Visa Public
The nature of their offerings means fintechs aren’t restricted to one or two verticals and can spread their solutions across multiple markets. In addition to finance, they are prevalent in education, retail, transport and health. They are also embracing the breadth of new technologies such as blockchain, internet of things and AI.
The fintechs surveyed by Startup Muster are split between those developing solutions for consumers (28%) and businesses (57%) – with some targeting both (15%) – indicating the breadth of the sector’s current and potential impact.
The average Australian fintech startup has six full time employees, which is just above the average for all startups at 5.6 employees. And they’re growing – 95% of respondents were planning to hire in the next six months.
So who are these six employees?
57%28%
15%
8 • Visa Public
Male 86% male, 14% female (looking at startups more generally – not just fintechs – 25% are founded by females).
Australian-born 64% were born in Australia, 6% in the UK, 5% in New Zealand and 4% in India.
Self-Sufficientwith 66% relying on their own cash contributions and 36% relying on family/friends to fund the company.
Highly Educated90% have a post-high school qualification.
East Coasters 60% have their primary office in New South Wales, 17% in Victoria and 12% in Queensland.
Solutions-orientedwith 52% having started their company based on an identified compelling opportunity and 46% based on solving a problem they were experiencing.
English-Speaking 96% speak English at home, 23% speak another language.
Varied in Age with founders evenly spread across late baby boomers, Gen X and millennials. 64% were born between 1970 and 1990, with the youngest founder being 19 years old and the oldest 65 years old.
Experiencedwith 45% having previously worked at a startup.
Today, the typical Australian fintech founder is an educated English-speaking male residing in New South Wales. He comes from a startup background and is resourceful and self-sufficient. He employs a lean and nimble team, and has a progressive, forward-thinking nature. He is confident, and while he may not record revenue, he is hungry for change and to make his product and vision known.
There is a clear opportunity to encourage foundership among a more diverse group of entrepreneurs.
Fintech founders
9 • Visa Public
The three most common skills in fintech founding teams are general business operations (66%), software development (63%) and strategy (52%). When asked who they want to hire, respondents said they are seeking software developers (60%), marketers (38%) and sales/business development professionals (38%).
Australia 72%
India 8%
Philippines 6%
USA 3%
Other 11%
Skills strongly represented in founding teamPrimary country used for outsourced work
Fintech startups are also open to outsourcing, with the most common reason being to acquire specific expertise. More than two-thirds of fintech startups (72%) are primarily outsourcing their work to people in Australia, followed by India (8%), Philippines (6%) and the USA (3%).
Founding teams
General business operations
Software development
Strategy
Sales / business development
Project management
Financial management
Marketing
Data science / analysis
Product management
Accounting
UX design
Customer service
Business operations overseas markets
Legal
Graphic design
Content creation / writing
Managing people
Public relations
66%
63%
52%
47%
44%
43%
30%
29%
27%
27%
25%
24%
19%
18%
16%
13%
13%
10%
10 • Visa Public
Fintech founders claim that ‘identifying a compelling opportunity’ (52%) was their biggest motivation to take the first step, closely followed by ‘solving a problem I was experiencing’ (46%).
What fintech founders enjoy most about running a company is ownership of the value created (81%), developing technology that is exciting (75%) and the opportunity for financial success (70%).
Why fintechs are founded
Motivation for founding company
Identifying a compelling opportunity
52%
Solving a problem I was experiencing
46%
Experience from founding a startup previously
35%
Dissatisfaction with previous job
28%
Meeting my co-founders
24%
Having a supportive partner or spouse
24%
Circumstances made having my own
business desirable
16%
Inspiration from direct contact with startups
14%Having an
entrepreneurial father
12%
A fun project that became a viable business
11%Inspiration from attending
startup-related events
10%
11 • Visa Public
Of the respondents, 40% had recorded no revenue in the previous 12 months, while almost a third (31%) had revenue of up to $100,000. Only 10% of respondents had achieved over $1m in revenue.
Despite this, fintech startups are more bullish on revenue targets than startups in general.When asked how many years it will – or did – take for the company to reach $10m in annual revenue, the average for fintechs is 4.9 years compared to 5.6 years for all startups.
A bullish outlook
Defined in Startup Muster’s survey as the maximum annual revenue you could make if you secured every potential customer around the world for your product or service.
Total Addessable Market
>$100b
$10b - $100b
$1b - $10b
$100m - $1b
$10m - $100m
<$10m
15%19%
23%25%
81%11%8%
4.9
A similar pattern emerges when asked how long it will – or did – take to reach $100m in average revenue – 8.4 years for fintechs and 9.1 years for all startups.
This ambitious outlook may be attributed to the Total Addressable Market for fintechs, which over three-quarters (81%) of respondents estimated to be over $100m.
5.6
12 • Visa Public
27.5%
46.1%
49.7%
31.0%
28.1%
20.9%
10.4%
4.6%
0%
0%
12.1%
11.8%
8.8%
7.8%
3.6%
3.3%
11.4%
Currently revenue for fintechs is mainly from Australian customers (86% report this as the primary country of their customers), with US customers a distant second (8%), and other markets (6%) trailing. The domestic market is the target for both capital raising and expanding revenue in the short to medium term, as the graph below demonstrates.
Undertake capital raising in Australia
Expand sales significantly inside Australia
Expand sales significantly outside Australia
Undertake capital raising overseas
Open another office overseas
Move to a larger office in Australia
Travel overseas to take part in a program that will add value to the organisation
Move our primary office overseas
Move to a new office in Australia
Renew my office lease in Australia
Sell organisation to a foreign purchaser
No specific plans
List on the ASX
Sell the organisation to an Australian purchaser
Sell the startup to an Australian purchaser
Sell the startup to a foreign purchaser
Other
Short to medium term business objectives
In the next 12 months 12 months +Objectives
63.5%
61.6%
42.3%
34.2%
23.8%
20.5%
16.3%
6.8%
0%
5.2%
0%
3.3%
0%
0%
0%
0%
25.4%
13 • Visa Public
While Australian fintechs have their sights set on big things, as may be expected, their current finances usually don’t yet match these plans. In fact, fintechs are slightly ahead (69%) of the broader startup sector (67%) in needing a financial injection to continue operating.
If there’s one thing that’s clear though, it’s that fintech founders are committed. Revenues are not always strong enough to support founders and two-thirds (67%) need to work outside the company. In fact, 66% rely on their own cash contributions and 36% rely on family/friends to fund the company.
The financial reality
Fintech funding
Fundraising situation
When it comes to equity split amongst founders, the most common approach is an equal split (40%). Just over half (58%) report not having tried to raise investment.
When asked why they haven’t tried to raise funds, respondents either said they weren’t ready (46%) or their business plan didn’t require external funding (35%).
My own cash contributions
State government grant
Private equity in Australia
Private equity overseas
Family and friends Accelerator or incubator investment
R&D tax offset Federal government grant
Credit card Bank loan
Private equity in the form of a convertible note in Australia
Private equity in the form of a convertible note overseas
66% 13%
40% 12%
36% 10%
34% 9%
17% 6%
15% 6%
I tried but couldn't raise any
I tried but couldn't raise as much as I needed
I tried to raise and was oversubscribed
I tried and raised as much as I was seeking
I've never tried fundraising
6%
9%
17%
34%
58%
14 • Visa Public
When asked what fintechs require the most assistance with, media exposure tops the list at 43%, followed by corporate customers (37%) and mentorship (32%). Almost half (46%) of respondents have no marketing plans, highlighting the particular need in this area.
Accelerators or incubators have been used by just under a quarter (23%) of respondents, but of that number almost three-quarters (74%) found it a worthwhile process. The most valuable benefit of these programmes was the networking opportunities the participants accessed.
What startups need assistance with in the next six months
The opportunity for established businesses is to support fintechs with funding, promotion and expertise.
How established businesses can help
Media exposure
Seed investment
Legal assistance
Investment (no level specified)
Corporate customers
Accounting assistance
A-round investment
Promotion of a type other than advertising or media
Mentorship
Government customers
Social media exposure
43%
23%
29%
20%
37%
21%
28%
20%
32%
20%
27%
$
$ $
15 • Visa Public
While 40% are not currently recording any revenue, more than 81% consider the market opportunity to be well in excess of $100 million.
What gives them confidence is the growing number of consumers, investors and businesses who favour the new and innovative. This includes the millennial generation with its undeniable purchasing power.
Financial services are becoming a level playing field for new entrants and established players alike – a trend that will only accelerate with the introduction of open data. As a fintech that 60 years after its inception continues to grow, Visa knows the power of collaboration and partnerships – increasingly critical for all businesses in today’s economy.
They might not have the revenue today, but the demonstrated ability of fintech founders to understand and leverage the opportunities before them ensures they are well positioned for an exciting future.
The Australian fintech scene is young, but it is hungry.
Conclusion
16 • Visa Public
Visa is an active supporter and enabler of fintechs, in Australia and abroad. Through the Visa Everywhere Initiative, direct investments, partnerships and our suite of APIs, we work to help startups see their visions come to life and achieve success in the burgeoning global fintech market.
For existing and aspiring fintech founders ready to take their first or next step, Visa Partner is the place to do so. The portal provides fintechs with unprecedented access to Visa’s technologies, network and solutions, enabling them to scale and bring new payments solutions to life with speed and security. It simplifies the process of working with Visa and helps fintechs more easily leverage Visa’s network, resources and tools to succeed.
Through Visa Partner, you can also learn about Visa Fintech Fast Track – an application-based program that provides access to Visa’s strong partner community and the security, speed and scale of our network.
Dependent on business stage and location, the Visa Fintech Fast Track will provide you with the right tools, resources and connections to scale. Visa’s on-demand experts will help you navigate the complexity of payments via tailored onboarding, industry expertise, and marketing and consulting to facilitate growth. Through partnership, collaboration and investment, the program offers a clear path towards creating the future of digital payments.
partner.visa.com
Build the future of payments together with Visa
17 • Visa Public